July 25, 2012

Real Numbers Tell The Truth Behind the Affordable Care Act

By Bruce Krasting

The Congressional Budget Office produced two reports on Obama Care yesterday. The first (A - Link) did an analysis of what the cost would be if we just junked the Affordable Care Act (ACA). The second (B - Link) looked at the consequences to ACA as a result of the recent Supreme Court decision. 

A
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The House has recently put forward a bill to scrap almost all of ACA. This legislation is not going anywhere, it’s just a “show pony” for Republicans, so they can say they voted to repeal an unpopular law. The CBO is required to review all legislation, even if if it has not a ghost of a chance of passing

The CBO concluded that repeal would cost (increase deficit) by$109Bn over ten-years. This number assumes that government spending would actually decline by $890Bn, but the government would collect $1Trillion less in revenue. 

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B
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When Justice Roberts made his now famous opinion that affirmed the constitutionality of ACA, he also made two important changes. He said that the government could not force a citizen to pay a penalty, but it could levy a tax, and he said that States could not be forced to provide Medicaid to those who did not have health care insurance.

The decision by Roberts does change the economics of ACA. The CBO concluded that 4 million people would not have access to health coverage as a result of the Medicaid “opt out” that the States now have. The reduction in the number of people covered translate to “savings” that amount to $84Bn over ten years. 

Of course this is not really saving anyone a dime. ACA is going to cost a bundle. Post the Supremes decision, the CBO has concluded that ACA will cost a net of $1,168Bn over ten years. ACA will have expenses of 1,683Bn but will generate revenues of $514Bn to produce that net cost of $1.2 Trillion.

So we are screwed if we get rid of ACA, we are screwed 10Xs worse if ACA is kept alive. 

What do we get for the $1.2Tn? The answer the politicians will tell you is that the country will finally have universal health coverage for everyone. But that is not true at all. ACA does widen the access to healthcare to millions of additional people, but it falls well short of the stated goals.

The CBO has concluded that as a result of ACA, the number of people today who do not have access to healthcare will fall from 53m to 30m over the next ten years. While the 46% reduction in uninsured is admirable, it still is a far cry away from what this law has been sold as. America will still have 10% of its population uninsured. 
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The CBO is only allowed to review “Current Law”. ACA must be reworked to reflect the ruling by Roberts that the government can’t charge a penalty for not participating in ACA. The Supremes determined that the penalties must be in the form of a tax for it to be legal. 

At some point, lawmakers have to get together and rework the critical language and convert what was once a “penalty” into a tax. I suspect that this is going to be a big problem post the November election.

It’s very important to look at who will be paying these penalties/taxes. The numbers are huge. The following looks at who is going to be paying to make ACA a reality:
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- $172Bn (15% of the total cost) is coming from those “penalties” that somehow are going to be converted into a tax. I think the country will see just a fraction of this amount actually collected.

- 10% of the cost ($111Bn) will come from people who have “Cadillac” insurance plans. So if you’re working for a company that has good health plan today, get ready to pay some extra bucks. 

- Fully 20% ($231Bn) of the cost of ACA is coming from high-income earners. They will pay more income tax to subsidize the new law.

The bottom line on ACA is that it will increase the deficit by $1.3Tn, it results in tax increases of $514Bn and it covers less than half of the uninsured today. That is called success in Washington. Me? I call it a disaster.

About The Author - Bruce Krasting had worked on Wall Street for 25 years--"For 25 years I woke up thinking, "What am I going to do today to make some money in the market". I don't do that any longer. But I miss it." Nowadays, Bruce blogs about his take on financial events at Bruce Krasting(EconMatters author archive here.)

The views and opinions expressed herein are the author's own, and do not necessarily reflect those of EconMatters.

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